MSFT Leads Both DJIA and NASDAQ Higher
After the first close above 4000 on the NASDAQ since April 11th, a slow day like this was very welcomed. Although slow, it was steady. We saw some encouraging signs in the NASDAQ's trading pattern as the sellers made the bulls work for it early. Yet, the real highlight today that drove both the DJIA and the NASDAQ was MSFT. We have been waiting for this day for what feels like an eternity. The software giant is back on the block and investor were just throwing money at it. It's beginning to feel like the old days again.
It certainly feels good when your number one player, who has been out indefinitely with an injury, finally starts to get some good news from the doctors. Well, it's been a long time coming but MSFT finally is back on the field. Right now, the markets are at a pivotal point, preparing to make a run at that summer rally. After that, the late summer slowdown occurs as investors take a break until September. With MSFT back in the green, this just could be the catalyst that the NASDAQ has been waiting for. The DJIA is a different story.
Hitting its highest levels since April, MSFT surged $5.75 to close at $80.69. An almost 8% move! Last time MSFT did that was on the downside. Sparking the move was news last night that U.S. District Court Judge Jackson initiated a stay order that would delay a series of broad conduct restrictions on MSFT's business practices. These were scheduled to begin September 5th but now will be on hold until the appeals process is complete. Considering this being the largest antitrust case ever and its economic significance, the outcome will be profound. Today's move in MSFT propped up the ailing DJIA as it tacked on 62 points to finish just shy of 10500 at 10497. The NASDAQ finished up 50.65 at 4064.
The NASDAQ's close today above 4050 is quite relieving. Even though we are not getting those triple digit gains of the first quarter, today's steady climb from sub-4000 levels spoke volumes. Gapping open to the downside at 3961, there was a bit of nervousness as to whether yesterday's close above 4000 was just an aberration. We constantly hear about follow-through for confirmation. That's exactly what we got. Within a half hour, the NASDAQ traded over 4000 and didn't look back. What was so encouraging was the three minor retests of that level. Notice on the chart that each time we got a bounce, and the third sent the NASDAQ off on a 63 point run. So from start to finish, the buyers lifted the NASDAQ 100 points on decent volume of 1.5 bln shares.
It looks like the NASDAQ is ready to test resistance at the 100-dma, currently 4113. Yet, it's not as easy as it sounds. Any upside move will meet resistance at 4100 as this level roughly coincides with 4000 on the NASDAQ 100(NDX.X). That is a level that many analysts and technicians will be watching. Today's rally was more broad based than yesterday. The likes of AKAM(+21.38), FIBR(+18.81), and DNA(+13.00) produced sizeable gains for the Internet, Broadband, and Biotech sectors. A renewed leadership role for MSFT, and we just might have the chemistry to test these resistance levels. We don't rule out the possibility of a retest of 4000 support. A strong bounce from there and I'll be rushing to buy more calls.
MSFT also was a tremendous performer for the DJIA, which is looking pretty unhealthy right now. You can see from the DJIA's narrowing descending wedge that it may be reaching a breaking point very soon. Today's gain looks miniscule in comparison to the April levels. The downtrend cannot be mistaken. A breakdown would take the DJIA to 10300 and perhaps even further. It just can't seem post higher highs since April 11th, the same day the NASDAQ last saw 4000. Volume today at the NYSE was good at 1 bln shares, but the decliners still beat out advancers 1600 to 1258. Lending a hand to MSFT today was MMM(+4.06) and HWP(+3.00). GE was down $1.56 to close under the key $50 level at $46.44. If not for MSFT, the DJIA would not have been in the green today.
In a much anticipated meeting today in Vienna, OPEC announced that they would increase oil production by 3%, or 700,000 bpd. NYSE and oil traders were watching this outcome closely yet the news didn't really have the desired effect. August sweet crude futures added 72 cents, bring a barrel to $31.37. OPEC nations are already exceeding their quotas by 500,000 bpd so today's announcement in effect only will result in an increase of approximately 200,000 bpd. Non-OPEC nation Mexico decided to increase its production by 70,000 bpd to defend its market share. Exorbitant gas prices have been plaguing the U.S. but don't expect relief anytime soon. Analysts think today's decision will cap the highs for oil and gas prices, but an easing in gas prices probably won't happen until September, when these excess barrels from the Middle East finally reach U.S. ports. Not what I wanted to hear considering I just paid $28 to fill the tank. Currently, the national average for gas is $1.681 per gallon. A rough rule of thumb is a $1 drop per barrel in oil prices equals 2.5 cents in a gallon of gas.
Showing a sign of health today was the IPO market as both the NASDAQ and the NYSE showcased their new members. In what has been a beaten down market, New York debuted China Unicom(CHU)'s huge $4.9 bln IPO. CHU is a wireless telecom provider. At the NASDAQ, Handspring(HAND) found some happy buyers who took the stock $6.94 higher to close its first day at $26.94. We would like to see an increasing amount of successful IPOs as a sign that money, both institutional and retail, is expanding its reach once again.
On the earnings front, Bed Bath & Beyond(BBBY) beat Street estimates by 1 cent, coming in at $0.16 per share, a 31% increase over last year. The company opened 10 new superstores last quarter and plan to open at least 50 more. BBBY closed up $0.75 to $35.81. E-business infrastructure software provider Tibco(TIBX) posted $0.04 earnings per share, beating expectations of a penny a share. This was a get improvement from a 5 cent loss a year ago previous. The gain was attributed to strong revenue growth of 157%, recording $54 mln from $21 mln last year. Shares of TIBX finished down $2.50 to $83.06. After hours trading shows continued selling pressure. Verity(VRTY) blew away estimates by 17 cents with earnings of $0.32 per share, more than double. VRTY added $2.31 to $44.31 in trading.
Yet, all is not rosy for earnings. As Ryan mentioned in yesterday's wrap, it is earnings warning season. Tyson Foods(TSN) saw its shares tumble 5% after the company warned that its quarterly earnings would fall shy of consensus estimates of 26 cents. They predict a more realistic number would be $0.18 to $0.20. TSN cited weaker domestic demand for its chickens. TSN closed at $9.06, down $0.50. How much lower can they go?
Looking forward, it feels like the NASDAQ is ready to make that run at 4113 in the next couple of days. Tomorrow after the bell, MU reports earnings which definitely will set the tone for Friday's trading. Talk around here has a bullish feeling ahead of next week's FOMC meeting. We think a rally into it wouldn't be surprising with slight profit-taking on the interest rate news. A move through NASDAQ 4100 and I am going to be hunting for more calls, but watch the overhead resistance carefully.